Itemizing vs. Standard Deduction

Itemizing vs. Standard Deduction

Each tax season taxpayers have to choose to between standard and itemized deductions. It is smart to compare the two methods, and pick the one that gives you the largest tax benefit. The following are some tax tips to help you choose.

Know what the standard deduction is. If you choose not to itemize, you will automatically be given the standard deduction. The standard deduction amount is determined by your filing status. For 2012:
• Single: $5,950
• Head of Household: $8,700
• Married Filing Jointly: $11,900
• Married Filing Separately: $5,950
• Qualifying Widow/Widower: $11,900

Your standard deduction can change due to other outside factors. If you are over the age of 65 or are blind, your standard deduction is higher. Your standard deduction may be lower if another taxpayer can claim you as a dependent on their tax return. Form 1040, the U.S. Individual Income Tax Return, provides instructions in the worksheets, or you could consult a tax professional.

When choosing between itemized and standard deductions, it is important to know that there are exceptions. Some taxpayers may not qualify for the standard deduction and should itemize. If you are married but file taxes separately and your spouse itemizes deductions on their return, you cannot choose the standard deduction. You also cannot choose the standard deduction if you, or your spouse if you file jointly, were a non-resident alien at any time during the tax year. The final way a taxpayer can be ineligible for the standard deduction is if you are filing a tax return for a short tax year due to a change in the annual accounting period.

When you itemize a return, you fill out Schedule A of Form 1040. Taxpayers will want to figure out their itemized deductions, and then compare the amount to the standard deduction. Taxpayers will want to include actual deductions such as mortgage interest paid, real estate taxes, local taxes, state and local taxes, medical expenses and charitable contributions made during the previous tax year. Taxpayers should itemize their deduction if they:

• Do not qualify for the standard deduction
• Paid interest and taxes on their home
• Had large unreimbursed business expenses
• Paid for large medical or dental expenses that were not covered by insurance
• Had a large amount of miscellaneous deductions
• Incurred large casualty or theft losses

Taxpayers should choose the deduction that provides them with the largest tax benefit. Taxpayers will benefit from the standard deduction if the standard deduction is more than the total of your allowable itemized deductions. It is important to compare the itemized and standard deduction amounts, and file with the method that has the greatest benefit, and the tax help of a law firm can assist with this decision.

Sources:
http://www.irs.gov/uac/Newsroom/Itemizing-vs-Standard-Deduction-Six-Facts-to-Help-You-Choose
http://www.irs.gov/publications/p501/ar02.html#en_US_2012_publink1000221051